Pension Protection Fund

The Pension Protection Fund was set up by the Government to provide compensation to members of defined benefit pension schemes, where the employer has become insolvent and the pension scheme has a deficit.

The Pension Protection Fund provides valuable safeguards for members of occupational schemes.

For the PPF to take on a responsibility for a scheme it has to satisfy certain conditions:

• The scheme must not have started being wound up before 6 April 2005.
• The sponsoring employer must have become insolvent.
• There must be no chance the scheme can be rescued.
• There must be insufficient assets in the scheme to provide benefits at the PPF level.

Once insolvency occurs the scheme enters the Assessment Period.

The level of compensation by the PPF depends on the status of the member immediately before the assessment date.

The compensation cap is subject to an actuarial reduction if applied before age 65 so, for example, at 55 the maximum compensation payable is £26,802 (in 2009/10).

The compensation cap is subject to an actuarial increase if applied after 65 so, for example, at 70 the maximum compensation payable is £36,099 (in 2009/10).

Once the compensation pension is in payment, the annual increases will be the lesser of RPI and 2.5% on post 1997 service only.

The legislation does contain powers whereby PPF benefit levels can be reduced in the event of a shortage of PPF funds.

The PPF is funded by a levy on pension schemes.

For more information go to the Pension Protection Fund website